MicroStrategy stands at a critical juncture with its imminent Nasdaq 100 inclusion, a milestone that highlights both the company’s remarkable Bitcoin-driven transformation and its underlying business vulnerabilities. The stock’s meteoric rise, fueled by cryptocurrency investments, masks growing concerns about its fundamental business sustainability.
Led by Bitcoin enthusiast Michael Saylor, MicroStrategy has dramatically shifted from what used to be a very traditional business intelligence software company into a cryptocurrency-focused investment vehicle. The company has come to own about 2 percent of all the Bitcoin out there in circulation, transforming the market perception and consequently its stock performance.
Financial Transformation and Risks
The aggressive Bitcoin strategy of the company has pushed its stock to unprecedented levels but with a massive financial risk. In five years, outstanding shares of MicroStrategy have grown from about 10 million to more than 216 million dilution that affects significantly on EPS.
The ’21/21 Plan’ further enshrines the high-risk strategy that the company has embarked upon. This plan will look to raise $42 billion through convertible debt and at-the-market offerings. This is expected to continue the dilution of shareholder value and critically hangs on the momentum in the Bitcoin price being sustained.
While its data-driven analytics and mobile software business once played center stage, it is now being completely outshined by investment in cryptocurrencies. The profit the company generates from the core business intelligence segment seems to be falling, raising concern as more Wall Street eyes turn their way.
Nasdaq Inclusion: Short-Term Boost or Long-Term Challenge?
The expected listing on the Nasdaq is a two-edged sword. Though this will boost the stock short-term, it places MicroStrategy under greater scrutiny of institutional and market analysts simultaneously. It is not so easy to ignore the deterioration in the core business performance under such intense analysis.
It has manifested itself in recent hedge fund portfolio movements. The number of hedge fund portfolios holding MSTR has marginally declined from 26 to 25 in the most recent quarter subtle indication of growing investor hesitation.
Investment Considerations
It’s quite a risky affair for the investors. This is as the valuation of the stock seems to heavily depend upon continued Bitcoin price appreciation and market sentiment, rather than on robust business fundamentals. Such precarious positioning raises immense questions about sustainability over time.
Had it not been for the Bitcoin pump, investors would have lost interest in the company a long time ago. The huge issuance of shares and uncertain course of business would normally get investors worried. However, the cryptocurrency hype is presently covering the underlying fundamental ills.
MicroStrategy is the high-risk, high-reward type of investment. Its addition to the Nasdaq 100 may be exciting in the short term, but its huge bet on Bitcoin and the weakening core business suggest future challenges.
The investor should look beyond the euphoria triggered by Bitcoin in the immediate future and study carefully the company’s core business strength, risks of dilution of shares, and long-term viability. Although the stock will continue to attract risk-taking investors, the underlying business fundamentals throw a red flag over its sustainable growth potential.
The company’s future hangs precariously on the performance of Bitcoin and its ability to sustain investor confidence in this unconventional strategy.
